Double Whammy   

News organizations confront the daunting combination of higher newsgathering costs and sagging ad revenues.

The good news--if you look hard enough, you can find some--may be that the events of September 11 produced both sterling journalism and a higher sense of journalism's purpose. After a summer of Gary Condit and man-eating sharks, acts of domestic terrorism and the specter of an international war against it shook the public and the media from their mutual embrace of the trivial, their romance with frivolity.

The story was gigantic, and so was the public's appetite for it. CNN's ratings were 10 times the norm in the first few days following the attacks. Many newspapers produced something they hadn't in a decade--an extra edition detailing the news almost as it was happening. The New York Times doubled its newsstand press run for its September 12 paper, then tripled it the next three days running. Time magazine printed 8 million copies of its black-bordered special issue, nearly double its usual run. Web sites specializing in news came near to collapsing from the crush of interest; according to Jupiter Media Metrix, Slate.com's traffic increased 385 percent. Time.com's was up 653 percent.

Everyone benefited--and at the same time everyone is getting clobbered. Costs soared and advertisers took cover. The biggest news story in a generation or more occurred just as the pain of newsroom downsizings, buyouts and layoffs was beginning to fade. The gut-punch that the attacks laid on the economy seems certain to trigger that pain anew even as the story mushrooms.

September was a write-off for every major media company. Publishers such as Gannett, Dow Jones, the New York Times Co., E.W. Scripps and Knight Ridder, along with CBS owner Viacom, all warned Wall Street that their financial performance would be impaired for the month and the third quarter because of lost ads and rising news costs. The fourth quarter does not look promising, to say the least.

No wonder. In the confused aftermath of September 11, journalism began to look like a money-burning public service instead of the richly profitable enterprise it has long been. Leo Kivijarv, director of publications for Veronis Suhler, a media industry financial institution, calculates that added expenses and lost ad revenue cost television companies, magazines and newspapers approximately $750 million in just the first four days after the attacks, the bulk of it borne by suddenly commercial-free TV networks and local stations. The networks' news divisions spent an extra $1 million to $2 million per day each to cover the story during the first week, estimates Tom Wolzien, an analyst with Sanford C. Bernstein & Co. The combination of higher costs and fewer ad dollars cost the networks between $50 million and $70 million apiece during this period, he says.

To understand how bad it could become, consider how bad it already was, before September 11. While the general economy was flirting with recession, the ad business was bear-hugging it. Ad buys on network newscasts during the advance "upfront" season fell 19 percent compared with last year, according to Mediaweek. During the first six months of the year, newspaper ad spending fell 6.5 percent, with classified ad revenue off 12.2 percent, the biggest percentage drop in 30 years, according to the Newspaper Association of America.

These figures are somewhat deceptive, to be sure; they're based on comparisons with last year, the richest in media history. Then again, the hemorrhaging began well before September 11; Zenith Media, an ad firm, was already forecasting on August 31 the biggest annual percentage decline in advertiser spending since the Depression.

Where it all stops, and what the consequences of this are for covering the news, is still guesswork.

CNN's Larry Goodman, the network's top ad salesman, says about 85 percent of the advertisers returned to the air after the network went ad-free for six straight days. With a little luck, he says, the fourth quarter could be a wash, not a washout. "Advertising dollars follow ratings," says Goodman, "and our ratings have been understandably high. That's going to drive dollars CNN's way."

Tom Curley, president and publisher of USA Today, says some of the early ad cancellations were subsequently offset by a wave of "condolence" ads and then another spate of flag-waving "patriotic" ads. But he says other companies are holding back, still trying to figure out the appropriate message. "I don't feel comfortable offering predictions right now," he says. "It's been a tough year, no doubt about that. But right now, it's hard to be sure beyond the day-to-day."

For news executives, the worst-case scenario is the continuous double whammy: steadily plummeting ad revenues coupled with the soaring editorial costs of covering a far-flung war. For the moment, it's not clear what's to be covered and for how long that coverage will have to be sustained. The obvious datelines for now are in Afghanistan and Pakistan, but as many as 60 countries are said to harbor terrorists.

By the end of September, there was still plenty of brave, can-do talk among the news elite. "You do what you have to to cover the news," says Curley. "You have a mission. This is an extraordinary priority. If you don't respond accordingly, you risk losing your readership."

So far, there's been no grave budget talk at Time magazine, which produced three issues in the span of eight days in September. The breakneck pace necessitated extra spending on overtime, freelancers, even on catered breakfast, lunch and dinner to keep staffers working around-the-clock. "This is what newsmagazines are for," says Stephen Koepp, Time's deputy managing editor. "It would take really short-term thinking to set an arbitrary [budget] number and stick with that. This is an opportunity for us to cement our relationship with our readers. This is what they expect from us."

The TV networks--the foremost source of news--have their own set of challenges. The enormity of the story seems to call into question the wisdom of the networks' relentless cost-cutting efforts over the past 15 years. Each of the traditional big three--ABC, NBC and CBS--has shifted resources from traditional hard news to softer, magazine-style journalism. It's true that the networks' news divisions now produce more programming than ever. But the definition of news has changed. Where news once meant a nightly summary of events and the occasional prime time documentary, it now includes talk shows, anthology programs such as "48 Hours" and hybrids like the "Today" show.

One casualty of the cutbacks has been foreign news--the very stuff of the next phase of the story. With the waning of the Cold War, the broadcast networks have closed and consolidated many of their bureaus abroad. Only CNN has substantially beefed up its international presence since the Persian Gulf War, doubling the number of its bureaus outside the U.S. to 30.

These changes were propelled by several factors: the end of the Cold War, the explosion of cable channels (which shrunk the network news audience) and the takeover of the leading networks by cost-conscious media conglomerates, says Tom Rosenstiel, director of the Project for Excellence in Journalism. The present crisis, he says, demonstrates the consequences of "turning news divisions into magazine and domestic feature organizations."

Foreign correspondents, he adds, "have become good at going into refugee camps, but they often don't have a lot of background or experience in the affected countries. When you come into a country as a stranger, you are put in a much more passive position as a reporter. I honestly don't know how much background reporters [newly assigned to Central Asia] have now."

Naturally, all of the networks reject this view; they say they're up to the challenge. Since the attacks, they have bolstered their reporting in Pakistan and the Persian Gulf with stringers and correspondents sent from the U.S. "The costs are considerable and as we go forward somewhat unpredictable," acknowledges NBC News Vice President Bill Wheatley. But, he adds, "We've spent millions of dollars on our coverage already, and we're committed to spending whatever it takes." The logistics and economic strains, says Erik Sorenson, president of MSNBC, "are manageable. And interest in this story will make it worth the cost."

But analyst Wolzien, a former NBC executive, says the financial and journalistic toll became obvious the longer the networks stayed on the air after the story broke. "This is clearly CNN's kind of story," he said. "ABC and CBS did a good job in the early days, but they got stretched pretty thin pretty fast. NBC is helped by having MSNBC, but they're stretching, too. And Fox has the challenge of trying to turn a [cable news operation] based on talk into one based on [news] coverage. It'll be interesting to see which network starts calling for pool coverage first" in order to save money.

The long haul will tell the tale, agrees Rosenstiel. "In the short run, a sense of obligation will overtake the General Electrics [NBC's owner], Disneys [ABC] and Viacoms [CBS] to cover the news," he says. "But the pressure will come toward the end of the year, when people begin to look at year-end results and start tallying these things up. When the immediate fascination with the crisis begins to give way to a sense of unsettled normalcy, you're going to have an uneasy stasis."

In other words, the network news divisions--and indeed much of the media--may find themselves fighting a battle they've fought for many years: how to justify a sustained increase in spending on editorial resources when it's not clear there'll be an immediate financial return.

So far, USA Today's Curley, for one, thinks the coverage of the events of September 11 and immediately thereafter were among the media's finest moments ever. "To go from covering Condit to covering terrorism--it's been a total transformation," he says. He could be right. But with dark clouds gathering for what could be a very long winter, the next question may be, how long will the media keep it up?